South Africa Credit-Rating Outlook Cut to Negative by S&P

March 28 (Bloomberg) -- South Africa’s credit-rating
outlook was cut to negative by Standard & Poor’s because of
slower economic growth and a risk the government may not be able
to control spending to rein in the fiscal deficit. The rand
dropped the most in almost a week.

The foreign-currency debt rating of BBB+ was affirmed and
the outlook was reduced from stable, S&P said in an e-mailed
statement today. The rating is the third-lowest investment grade
and in line with Thailand, Kazakhstan and Ireland. Fitch Ratings
and Moody’s Investors Service have lowered their outlooks since
November.

“There are issues of public-sector wages that could
increase going forward that could put pressure on fiscal
planning,” Christian Esters, director in the Africa sovereign
ratings team, said by phone from Frankfurt today. “There are
some underlying risks, also related to gross domestic product
growth.”

South African economic growth will slow to 2.7 percent this
year, according to the government, as Europe falls into
recession, reducing demand for manufactured goods from the
continent’s largest economy. Job creation has lagged, keeping
South Africa’s unemployment rate the highest of 61 nations
tracked by Bloomberg.

“The South African government will continue to place
higher economic growth and job creation at the core of its
economic policy, within a transparent investment and sustainable
fiscal framework,” Pretoria-based National Treasury said in an
e-mailed statement. Reserve Bank spokesman Hlengani Mathebula
didn’t return a message on his mobile phone.

Social Problems

The currency dropped as much as 1.4 percent, the most in
two weeks, to 7.7089 per dollar, and was trading at 7.6890 by
7:37 p.m. in Johannesburg.

The Treasury forecast on Feb. 22 the budget deficit will
narrow to 4.6 percent of gross domestic product in the fiscal
year through March 2013 and 3 percent by 2015. It has estimated
a lower-than-inflation increase in state-worker wages of 5
percent.

“Fundamental structural economic and social problems
continue, such as very high unemployment and a structural
current-account deficit that makes the economy dependent on
external financing,” S&P said in a statement.

Fitch cut its outlook to negative on Jan. 13, citing
slowing growth and job creation. Moody’s lowered the outlook
Nov. 9 because of “heightened political risk” tied to the
ruling African National Congress’s policy conference in June and
its elective conference in December. Youth League President
Julius Malema, who is appealing his expulsion from the party,
led a campaign by the ANC’s Youth League for mines and banks to
be nationalized.

‘Matches the Noises’

“Overall this action does make sense given the low
potential growth of the country and the policy risks that are
out there and hinted at in the ANC policy discussion
documents,” Peter Attard Montalto, an economist at Nomura Plc
in London, said in a note to clients. “The statement matches
the noises that have been coming from them in recent months
though it was not obvious they were on the cusp of a change.”

The nation’s borrowing costs rose, with the yield on the
10.5 percent local-currency bond due 2026 rising four basis
points to 8.48 percent.

“We disagree with the assessment of the political risk in
South Africa,” National Treasury said. “Political debate and a
vigorous exchange of ideas on policy options are part and parcel
of the fiber of a democratic dispensation. This cannot be
construed as political instability.”